Q3 2025 TE Connectivity Ltd Earnings Call
Everyone. Thank you for standing by and welcome to the TE Connectivity. Third quarter earnings call for fiscal year 2025. At this time. All lines are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during that time, simply press star 1 on your telephone keypad,
As a reminder, today's call is being recorded.
Speaker Change: I would now like to turn the conference over to our host vice president of investor relations sigil Shaw, please go ahead.
Speaker Change: Good morning and thank you for joining our conference. Call to discuss, te connectivities third quarter results, and outlook, for our fourth quarter of fiscal 2025,
Speaker Change: With me today are chief executive officer Terrence, Curtin and Chief Financial Officer Heath Smiths.
Speaker Change: During this call, we will be providing certain forward-looking information and we ask you to review the forward-looking cautionary statements included in today's press release.
Speaker Change: Presentation that addressed the use of these items.
Speaker Change: The press release and related tables. Along with the slide presentation can be found on the investor relations portion of our website at te.com
Speaker Change: I would also like to take this opportunity to announce that we are planning to hold an investor day on November 20th, in Philadelphia with a product showcase the evening before.
Speaker Change: We are excited to share more about our opportunities for growth and further value creation for our owners and we'll be sending out details of the event shortly.
Speaker Change: Finally, during the Q&A portion of today's call due to the number of participants, we're asking everyone to limit themselves to 1 question.
Speaker Change: Then you may rejoin the queue if you have a second question. Now let me turn the call over to Terence for opening comments.
Terence: Thanks, s. And thank you everyone for joining the call today.
Terence: As I normally like to do, I do want to take a moment before we get into the slides to framework results. For our third quarter, as well as of our guidance for Force, fiscal quarters.
We are pleased that we've delivered, double digit increases in both sales and adjusted earnings per share in the third quarter that exceeded our guidance and demonstrate our team's ability to continue to execute in a dynamic global environment.
We delivered 14% sales growth in 19%, adjusted earnings per share growth.
Terence: And both of these are quarterly records for our company.
Terence: A key driver of our success has been the Strategic positioning of our portfolio and the Investments that we've made to broaden our business to benefit from secular growth Trends in both the transportation and Industrial segments.
Terence: The Investments that we made, you will see that a payoff and are evident in our results. As we're capitalizing on the strong demand for artificial intelligence as well as growth in energy applications where our products needed.
Terence: We're also benefiting from strength and Asia, and our transportation segment, where we see increased data connectivity, Trends, and ongoing growth of the electrified Powertrain.
Terence: You not only see the benefit in the Investments on the growth side, but you also see it in our operations.
We achieved record adjusted operating margins of 20% and record free cash, flows generation of 1 billion dollars, this quarter.
This is the result of our Global manufacturing strategy where we've invested heavily to have over 70% of our production localized. And this is providing to be a differentiator with our customers.
Terence: And finally, we do expect our strong performance to continue into the fourth quarter with both double digit sales and double digit, adjusted earnings per share growth again in the fourth quarter.
Terence: So with that, as a backdrop, let's get into the presentation. Starting with slide 3 and I will discuss some additional highlights and the guidance for the fourth quarter of fiscal 25.
Terence: Our third quarter sales were above guidance at 4.5 billion growing 14% on a reported basis and 9% organically year-over-year.
Terence: We saw acceleration in our industrial segment with over 20% organic growth that was broad-based and driven by our Digital Data networks and energy businesses.
Terence: We delivered record adjusted earnings per share of $2.27 that was well above our guidance and increased 19% versus the prior year.
Terence: Our adjusted operating margins were 20%, and they increase 60 basis points over last year.
Terence: Driven by strong operational performance by our teams.
As you know, we've been on a journey to expand margins at the company level, and both segments are now essentially running at 20%.
Terence: And importantly to highlight and we'll get into it in more details, the industrial segment. Adjusted, operating margins expanded, nearly 400 basis points year-over-year
Terence: We also saw orders improve again this quarter to 4.5 billion dollars and this was an increase of 8% year-over-year as well as 5% on a sequential basis.
And these orders support our outlook for the double digit growth in our fourth, fiscal quarter.
Terence: We delivered record due to date free cash flow of approximately 2.1 billion dollars and we returned 1.5 billion to shareholders and we deploy 2.6 billion dollars of capital for Acquisitions in the industrial segment which includes the Richard's acquisition that we closed this quarter.
Adjusted earnings per share is expected to be around, 2.27, and this will be a 16% increase when a year-over-year basis.
Terence: Quarter guidance implies strong performance in fiscal 2025, with high single-digit, sales growth and double digit adjusted earnings per share growth year-over-year.
Terence: With that as an overview. Now let me get into order Trends and I'd appreciate if you could turn to slide 4,
Terence: In the quarter, we saw orders, go to 4.5 billion dollars.
Terence: In transportation orders, increase 5% versus the prior year with growth in Asia of 17% partially offset by declines. In Europe and North America.
The global auto market remains uneven by region and we continue to see strength in our Asia positions in both our orders and our sales, which is helping to offset the continued softness that we're seeing in Western markets.
Terence: Looking at orders in the industrial segment.
We continue to see strong order momentum with 12% growth, both year-over-year as well as sequentially.
And this reflects ongoing momentum and artificial intelligence applications and in our energy and Aerospace and defense businesses.
Terence: 1 key sign that we saw in the quarter and we're encouraged by is that we have Improvement in orders that we're starting to see in the general industrial and markets
Terence: Now, let me get into segments results and I'll start with Transportation. That's on slide 5.
Terence: Our auto business, grew 2%, organically in the third quarter with growth in Asia of 11% being offset by, by decline in Western regions of 5%.
Terence: While Auto production on a global basis was down slightly in the third quarter. It is expected to be roughly flat this year.
Terence: And we continue to generate growth over market and secure key winds around data connectivity and electrification. That will D drive through future content growth.
In addition to the Leading Edge Products and Technologies, we are also benefiting from our strong Global position and localization strategy, which enables us to serve our Global customer base in this environment.
Turning to our commercial transportation business. We experienced 3% organic growth and this was driven by growth in Asia and in Europe
Terence: partially offset by declines in North America.
Terence: We did see orders improved both year-over-year and sequentially indicating that there is some Traction in the commercial transportation cycle.
Terence: And in our sensors business, we saw weakness and end markets in Western regions partially offset by growth in Asia.
For the transportation segment, adjusted operating margins were 19.4% and we expect margins to be above 20% for the full year.
Terence: Now, let me turn to the industrial solution segment and that starts on slide 6.
Terence: And at the segment level, we grew 30% in the quarter with over 20% organic growth and the benefit of Acquisitions in our energy business.
Terence: The Digital Data networks, business grew over 80%, organically with increasing ramps, from hypers, scale platforms across our customer base.
Terence: You see the strong growth and I just want to remind you that AI revenues last year was million dollars.
Terence: We now expect our revenue from artificial intelligence applications to be above 800 million. In this fiscal, 2025 year and continues to reflect a strong momentum that we've been talking to you about,
Terence: In Automation and connected living. We grew 5% organically and we are seeing signs of recovery in Factory automation applications as markets, have gone to improve.
In our energy business, our sales grew 70%. And this includes the Richard's acquisition which enables us to capitalize on strong growth opportunities in the North American utility Market.
Terence: 1 of an organic basis or energy business. Grew with strong. 20% driven by continued momentum and grid hardening and renewable applications.
Terence: In our adnm, business sales, grew 6%, organically driven by growth across commercial Aerospace, defense and space applications.
Terence: And in these markets we see favorable demand trends that continue to be coupled with ongoing supply chain Improvement.
Terence: We expected.
Terence: Now, let me turn to margins for the segment.
Terence: And for the segment adjusted, operating margins expanded nearly 400 basis points to over 20% driven by strong operational, performance and benefits of higher volume.
Terence: I am pleased with the progress. Our team has made of balancing, our footprint, consolidation efforts with supporting the strong growth that we've had in the segment and that's clearly evident in the growth as well as in the margins.
Terence: So, with that, as an overview of our segment results in order, let me turn it over to Heath to get the more details on the financials and expectations go forward.
Heath: Well, thank you Terrence and good morning everyone.
Speaker Change: Please turn to slide 7.
Speaker Change: For the quarter adjusted. Operating income was 901 million with an adjusted operating margin of 19.9%.
Speaker Change: Gas, operating income was 857 million and included, 30 million of acquisition related charges and 14 million of restructuring and other charges for the full year. We continue to expect the structure and charges to be around the hundred million dollar level.
Speaker Change: Adjusted EPS was $2.27 and gaap EPS was $2.14 for the quarter and included, restructuring acquisition and other charges of 13 cents.
The beat versus our guidance was driven by strong operational performance and higher volume.
Speaker Change: The adjusted effective tax rate was 24% in Q3.
Speaker Change: And we expect a similar tax rate for the fourth quarter. As a reminder, the increase versus the prior year is primarily related to the impact of the pillar 2 Global minimum tax and our jurisdictional mix of earnings.
Speaker Change: Was importantly and as always, we anticipate our cash tax rate to be well below our adjusted VTR.
Speaker Change: I'll now discuss a couple of housekeeping items.
Speaker Change: During the quarter, we saw the US dollar weakened against other currencies resulting in a year-over-year benefit from foreign exchange of 68 million in sales and 5 cents and adjusted eps.
Speaker Change: Our Q4 guidance assumes a foreign exchange contribution about 111 million in sales and 3 cents to adjust the DPS year over year and these are part of the bridges and the back of the slide deck.
The impact from tariffs in the third quarter was approximately 1 and a half percent of sales with minimal earnings impact.
Speaker Change: Based upon what is currently enacted? We expect the impact from earnings in Q4 to be similar to Q3 levels. With our Global footprint, we will continue our strategy of mitigating tariff impacts through both our sourcing, uh, changes by te and our customers as well as implementing pricing actions.
Speaker Change: Turning to slide 8.
Speaker Change: When you look at the graphs on the slide, we have set records and sales adjusted operating margins and adjusted earnings per share.
Speaker Change: I do want to focus on cash flow.
Speaker Change: Cash from operations, was nearly 1.2 billion and free. Cash flow was 962 million in the quarter.
Speaker Change: Year to date. We have delivered free cash flow of roughly, 2.1 billion. And we expected to the the excuse me, when we expected to deliver another year of free cash flow conversion. Well above 100%
Speaker Change: Our cash generation and healthy balance sheet position us. Well, and provides us optionality with uses of capital so far. This year, we have returned approximately 1 and a half billion to shareholders and deployed, 2.6 billion for acquisitions.
Speaker Change: Before I turn it over to questions, let me reinforce that we are executing well to deliver record results and have positioned the company to continue to deliver. Strong performance and value for our for our owners.
Speaker Change: Hi, I'm pleased with the way our team is performing the results. We are delivering and the opportunities ahead of us.
We are well, positioned for a strong finish to the year. Setting us up for further growth in earnings expansion as we go forward into our next fiscal year as a reminder, that starts, October 1st.
Speaker Change: Now, let's open it up for questions.
Speaker Change: Okay, thank you. Can you please give the instructions for the Q&A session?
Speaker Change: At this time, I would like to remind everyone in order to ask a question press star 1 on your telephone keypad. If you would like to destroy your question, press star 1, again, in order to have time for all questions. Each participant is limited to 1 question. If you would like to ask a follow-up question, please press star 1 again to return to the queue.
Your first question comes from Scott, Davis with melia's research.
Speaker Change: Hey uh, good morning Terren and Heath suel. Hey Scott.
Speaker Change: Congrats on.
Positioning the company weld this year, particularly around the AI stuff.
Speaker Change: uh, which I need to ask about because it's topical, obviously, but
Speaker Change: Is that business. Now when you think about 800 million, which is just
Speaker Change: Big number. Really. When you think about where you were just a couple years ago, but is that business now fully ramped in scaled meaning like profitability, you know, matter above company levels? How do you think about that?
Speaker Change: Yeah, no, thanks Scott. And you know to your point, you know, like I said, I said it on the call, you know, last year we had in just AI application about $300 million of Revenue and you know, it's up, it'll be above 800 million this year. And when you look at where we're even run rating, now at this quarter, it'll be above a billion dollars next year. So it has been something from the scaling side, our teams have done an exceptional job trying to keep up with the demand, you know, when you look at the growth, we have it is on ramps. And you know, when you look at the margin that we get in this business, you know, you know it's not surprisingly. It is a little bit above where the industrial segment, um, plays. And I think you're going to continue to see nice conversion on that as that continues to ramp and I still think we're sort of middle to early innings.
Speaker Change: In this and what we're working on with Next Generation programs with our customers. And like we've always said as we've talked about AI, you know we're playing a grand broad slate of the hyperscalers, it isn't 1 customer here and how our teams are. Bringing not only the technology that's needed on the product set. But then to your question around the operation side, you know, our teams executing very well to really make sure we can deliver the technology at the pace that the hyperscalers expect. So that momentum we feel good about certainly. We see that not only being in 25, we see that continuing into 26
Speaker Change: Okay, thank you Scott, we have the next question, please.
It comes from Aid, darani with evercore.
Speaker Change: oh,
Speaker Change: Um, good morning everyone. Thanks for taking my question. Hey, you
Terrence: Hi, Terrence U.
Speaker Change: Don't.
Speaker Change: In June quarter, something that really stands out. Uh, I think everyone is just a broadening in both growth and the margin performance across your portfolio, uh, the Double Digit growth in industrial, is really stands out. So can you just talk on, you know, what's driving this diversification and growth that we're seeing in June and then really relate to that? The industrial segment? Margins, achieving 20%, uh, I think much faster than any 1 of us expected. Can you spend a little bit of time on kind of what factors contributed to this our performance and how sustainable these margin levels are? Thank you.
Speaker Change: Yeah, no thanks. Huh. And you know, let me break that into probably 2 pieces, I'll talk about the growth and I'll ask he to talk about the margin Journey that you've all been following with us.
Speaker Change: So, first off, when you think about the growth and, you know, let's face it, we have an unbelievable position and transportation that we we've always talked about, but really, when we think about, when we make investments and you think about what we do, which is across these markets is really connectivity is, you know, couple key trends that we've been investing in is around, where do you need data, where do you need higher speed data? And yeah, AI to Scott's question, you know is front of mind, but also realize, when we deal with things and we talk about software-defined Vehicles, it's around where we're strong and where those Trends help us.
Speaker Change: So it does come to a big point of those data speeds. And, you know, you see that in industrial where we benefited from in transportation but also in places like Factory automation, you have data speeds that are needed and you know, it's why we like our position there and to your question broadening out.
Speaker Change: The other big trend is its connectivity around power.
And you know in energy we've made Investments around our go to market and our product set. You see it in the organic growth that we've had now for goes back preco and then this quarter in energy it was 20% organic growth.
Speaker Change: And then we've deployed capital of an m&a there. So it does come around, you know, power connections, and no different than power connections. We have where the architecture changes in the car to the electrified Powertrain.
So it's things. We do good. Yes. We have to be Target to create value with our customers, but you're seeing that throughout our results and you see both both segments contributing. And, you know, that's the broadening that we get excited about because it's things that we have been investing in and certainly you see them in this quarter is a result.
Speaker Change: Um, certainly we're pleased with the the progress that we've made in the industrial segment margins, as it's been a journey to work its way from the the mid teens into the high teens. And, and now, you know, cross over the the 20% threshold for that business. But we would expect these level of margins at these volumes, right? So we've done a lot of footprint work in the industrial segment as you are, uh, aware. And and we've been pretty, uh, transparent that, you know, this restructuring Journey that the segment has been on to reduce some of the rooftops um, has has we've undertaken. So um, as you get that, both combination of reduced for fixed cost out of those fewer facilities and then the the scale that we get and the volume leverage. We get when we start to see these volumes. Um, it's it's not a it's not a, a huge surprise to us and we would have that level of expectation. Now, you know, some of the things
Speaker Change: We're benefiting from around the energy sector particularly in North America and the AI business within our gbn uh business unit certainly helps. Um, but yeah, all all pieces of the of the segments are contributing towards this journey and and uh and certainly aligned with what our internal expectations are. So we're happy to get there sooner but certainly it's it's come as as been as the top line has been supported.
Speaker Change: All right. Thank you, Ahmed. Can we have the next question, please?
Speaker Change: Question. I hope you can comment more on your view about the sustainability of the current fundamental strengths. And if you think any of the current Demand is due to customers pre-b buying in order to mitigate tariff risk,
Speaker Change: Yeah, no, thanks. Mark for the question. And, you know, we don't see any meaningful impact to pull in. So in our products that, you know, when we look at things and we talked to our Channel Partners, we don't see that certainly. I think you may see that a little bit more in semiconductors, but we do not see any meaningful pull-ins. And I think that goes back to the orders that we talked about back. When I covered slide, I think it was 4 and when you look at it both year-over-year and sequentially, we saw a nice growth. And we also saw growth year-over-year in both segments.
Speaker Change: Now.
Speaker Change: It's it's evident when you look at the slide, you look at the transportation line. And you you just sort of see something that looks very stable.
um, but as I said,
Speaker Change: age is strong, you know, Western car production still weak, you know, it is down mid single digits in the West.
Speaker Change: Um, between the US and Europe and then you're also getting into elements of what they're making. You know, there are less electrified Vehicles, just due to the trends there. So Asia is an area where we continue to see strengths and it you know half of our Revenue in automotive is Asia driven.
Speaker Change: We also saw commercial transportation. We continue to see growth outside the United States and commercial transportation. So North America is is the 1 area that continues to be soft and commercial transportation. But 1 of the things we were encouraged by is we saw clinical Improvement in global orders
Speaker Change: So, maybe we're seeing some traction there.
Speaker Change: And then in the industrial segment, mark it it is. I think the continuation of the AI momentum that we already talked about.
Energy continues, have strong orders. Um and you know North America is very strong in orders in the energy space so that that's going to continue and will benefit from what we did with um harder and richer from an m&a perspective.
Speaker Change: And you know, what was nice in the industrial segment, I talked about was in our Automation and connected living. We started to see encouraging signs about Improvement in orders and, you know, we're going to continue watchos to see what shape they are. But it's nice to finally see after a couple of years where it's been down, there are some encouraging signs there, and they're pretty broad around the world. It isn't just 1 region, it's broader than that. So finally, I think there's, you know, more upward potential there than what we've been talking about over the past 2 years. So durability, feels good. Um, you know, clearly it's reflected in our guide and some of these are real Trend. Secular Trend driven, you know, when you think about electricity growth, you think about what's happening with AI, which gives us even more confident, because around those trends.
Speaker Change: All right. Thank you, Mark. We have the next question, please.
Speaker Change: Your next question.
Speaker Change: Junk with beard.
Speaker Change: Uh good morning. Thanks for taking the question Terrence. Um, hoping we could maybe touch on the industrial book to Bill especially any timing related impacts. We might be seeing there in terms of AI. That could be causing some Distortion plus or minus. And maybe if you just, uh, comment on AI Ward specifically, uh, it's be especially interested in anything above and beyond this continued acceleration in like for like growth that you're seeing maybe relative to both the hyperscale or opportunity and Chip makers as we step into 26. Thank you.
Yeah. So let me take the second part first. You know, with when you look at where it has, I would just say it's the momentum's continuing. I don't think there is, you know, an incremental platform or an incremental customer. It's really where we have been strong. We continue to see momentum there and as we've always talked to you Luke and everybody else, you know, we have to play across the ecosystem to really win here. It has to be with the chip makers, with the hyperscalers, with obviously the contract manufacturers have put equipment together, that really supports the growth on top of technology. So I think when you look at it you're going to continue to see those that we've had traction and continue and it and it's pretty broad uh which gives us the confidence that I've talked about already.
Speaker Change: you know, in industrial, you know, the orders are broad-based Improvement, like I just answered to Mark's question and, you know, even if you look sequentially,
Speaker Change: Essentially, every business in the industrial business orders improved sequentially.
Speaker Change: So it is broad-based momentum. It isn't like there's 1 Aiello
Speaker Change: That's 1 of the things that's encouraging. Um, that in some areas that have been down. We see Signs of Life in areas that have been strong continue to stay strong.
Speaker Change: Okay, thank you Luke. We have the next question, please.
Speaker Change: Your next question comes from Joe's. Talk with EBS.
Joe: Oh uh, good morning. Thank you. Um,
Joe: I I guess just um maybe um following along those those lines terms. I mean it sounds like everything you think is at least sustainable. I I think we you and we would all sort of expect sort of you know, continued growth. So I mean, how should we think about a new sort of aspirational Target for for the company as we think out here a couple of years?
Joe: Margin Target. Sorry.
Speaker Change: Margin miles, I'm going to let he take that, you know, Joe, I appreciate the question. It's it's a um, it's something that, you know, internally that we work through as well. But looking at where the where the growth is, um certainly we are focused on a total company margin, uh, but as we, you know, look at our businesses respectively, both at the, you know, segment level that we report to here as well as, as we, you know, run run the business day to day and all of our business units. Um, we really look at incremental flow through and the incremental flow through on on that organic Revenue growth. And as we do that, you know, we do Target businesses. Uh,
Speaker Change: Like 30% or better. Um, there's some that have a little bit of a self-help work that, you know, we've spent more money on restructuring in and, um, you know, in those cases, they owe us a little bit more flow through because we've got to pay for some of those that benefit of that structure. But, um, in aggregate, that's kind of how we measure, you know, what success looks like. As we move forward that will have the natural, you know, um, impact,
Speaker Change: As we, you know, hit those targets over over cycle, the natural impact of, you know, gradually moving that margin up.
Speaker Change: Um and then, you know, we obviously later on the inorganic side, on top of that and those come in all forms and fashions.
Speaker Change: Okay, thank you. Joe. Can we have the next question, please?
Christopher Glenn: Your next question comes from, Christopher Glenn with Oppenheimer.
Christopher Glenn: uh hey, good morning had a question on the
Christopher Glenn: Question on the energy segment.
Christopher Glenn: Um, wondering, you know, the Renewal Energy in the grid hardening.
Christopher Glenn: Uh, the degree of uh, codependence of those 2 versus maybe some Independent Drivers supporting the, the 2 call outs there. And if you're starting to see Richards kind of cross sell or, you know, bilateral pull
Christopher Glenn: Uh, creeping in there. And if the Run rate you're seeing here are just really structural lift or some particular periodic strain.
Christopher Glenn: No, great question. I think just just let me peel that apart a little bit here.
Christopher Glenn: About.
Christopher Glenn: Trends that we position around it. It starts with electricity growth is is the the common Trend when you deal with grid hardening and Renewables. They are independent. They don't have to be it completely interlap because there can be things you're doing on the infrastructure to secure the infrastructure. That doesn't mean it's a renewable uh, energy source, so they are separate as you click down. Now that being said, you know, Richard is much more aligned to what we do in Grid hardening. It has really broadened, what we do in great hardening and North America.
So if you look at our North American business before Richards, which was around 600 million dollars, probably only a million of it was in Grid. Hardening Richards is all grid hardening, so we get much more exposure to grid. Hardening with Richards, we do view down line. We could repurpose some of the Richard products for renewable applications but I would not say that's in the results because we are still in the middle of how do we increase the capacity to serve the current opportunity in the grid hardening side? But I do think down the road that we'll create Revenue opportunities and you know in the growth that we had this quarter of 20% organically even without the m&a.
Christopher Glenn: North America was much stronger than that. The trend around Renewables. We are continuously strength there, as well as in the great hardening. So, you know, we still think this is an area that will drive. Nice growth. Certainly we think we're positioned well, and we'll also look for opportunities where we can strengthen it, both organically and inorganically.
Christopher Glenn: All right, thank you, Chris. Can we have the next question, please?
Speaker Change: Your next question.
Speaker Change: Uh hi. Uh, thanks for taking my question and strong friend to your parents, maybe go back to something you mentioned in the, uh, Q&A earlier which is you still think we're in the early Innings, um, in terms of the AI opportunity. Uh, there's also an investor perception that maybe you're a bit early leaning in terms of market share opportunity, uh, as well. In terms of AI, particularly related to your pure company. Um, maybe if you can sort of highlight, where, how do you think about market share between, um, that you have between hyperscalers versus the chip companies and where do you see more opportunity on that front? As we look forward. Thank you.
Speaker Change: Well to your question and I said it earlier to make. Thanks for that question is you know we have to play with everybody here. You know, when you when you sit there let's face it. Some people design their own ships and tpus and other cases, they leverage the leadership and to really, when you have to make sure you're playing with everybody in the ecosystem, I cannot stress that enough. I like our broadness and I think if that that can create market share opportunities in the future,
Speaker Change: Future. And we also have to make sure we ramp the programs that we've won, you know, to Scott's first question, these programs are ramping and we got to make sure we capitalize on it. So I think from a technology, we're extremely well, positioned. I think there can be share opportunities in the future, but right now it is a we got to capitalize on the growth and you're seeing that growth, uh, you know, went from that 300 to 800 million and we expect to grow even, um, more as we go into next year. So, thanks for your question.
Speaker Change: Thank you so much. We have the next question, please.
Speaker Change: Your next question comes from.
Speaker Change: Uh, thanks guys. Um, great quarter. I was going to focus on AI, but um, I feel like that's been covered pretty well already. I, I'd like to ask, um, about a couple of well, at least 1 week spot anyway. Uh, book to bill was slightly below 1 and it looks like that's driven by Transportation. Um, can you talk about what uh, uh, dragging that? Um,
Speaker Change: And is it even important metric for us to focus on? Thank you.
Speaker Change: so, a couple of things, um,
I think it's a metric to look at. I, I would say when you look at our guide, I went over to Alona. You know, what you do see is, you know, when Transportation, you know,
Speaker Change: The automotive Market typically declines sequentially going from our quarter 3 to quarter 4 and we do expect that Trend to continue so that will impact. Hey we did see orders come down but that's more with the seasonal trend.
So, you know, Auto production we believe was 21 million units in the third quarter, we expected to be closer to 20 in the fourth quarter so we do expect a sequential decline in production will and that's really driving the book to Bill when you have that type of trend but we would normally see that this time of year. So it's not concerning to us. Um and you know, hey all of its included in the guide that we just went out with for the double digit growth at the company level.
Speaker Change: Your next question comes from. Colin Langan with Wells Fargo.
Oh great. Thanks for taking my question. Um, and congrats on a good quarter. Uh, I just want to have a little bit about the organic growth, uh, in transport and auto. I thought the long-term Target was to be 4 to 6% over Market. I thought you were training at the low end. I think, you know, S&P is up 2% on light Vehicles. So it looks like you're kind of in line um, with market growth in that segment uh any color there. And how should we think about that is is that being impacted by all the Eevee push-ups in the US and Europe?
Speaker Change: And Europe. Know it's a great question and you know, first off being we view that auto production declined about a point in the third quarter and we grew 2 points. So we had about 3%, outperformance.
You know where we are running a little bit below, our 4 to 6 really has to do with the unevenness of the world.
In Asia, we're growing 11%, you know, on a 4% production growth, of course. So we really are seeing that content outperformance with the West being down 5% percent in production, you know, our content is a little bit higher in the west that does pressure. The overall calc. I think we're going to be around 400 basis points in the fourth quarter, but the unevenness in production right now uh, is impacting what you see, in the overall content, we still feel good about the 4 to
Sex. But right now we're getting a little bit of pressure due to Western production levels, being light and you know, hey that will correct it sometime, but you're seeing that in the growth over Market,
Speaker Change: Okay, thank you Colin. We have the next question, please.
Speaker Change: Your next question comes from Joe gadano with TD Cowen.
Hey guys. Good morning.
Speaker Change: Hey, Joe.
Speaker Change: Hey, can you talk about price, uh, a little bit and how was that in the quarter and, and just curious how you think about that going forward? Like I I'm I believe that most of your price was Sir charges related to tariffs and if we're going into like a deescalate year in price, turned into like a modest headwind, maybe on the top line with like better margins coming through,
Speaker Change: Yeah, let me let me talk about price a little bit. I'll talk about it.
There's the Tariff Impact versus, you know, normal pricing environment, you know, and the and the Tariff side of things. You know, when we guided last quarter we thought that tariff cost would be about 3% of our sales.
Speaker Change: Due to all the policy changes, it came in about half that number. So, about a point and a half,
Speaker Change: And as he said, in his, um, pre- remarks, we, it had no earnings impact. So, our teams mitigated through the strategy that we talked about last quarter,
Speaker Change: how can we do things from a supply chain perspective, both ourselves and our customers and where we can't do that.
You know we implemented pricing and the bigger impacts in our industrial segments. So really where you see where we did do pricing, it's really in the industrial segment.
Speaker Change: But it wasn't as big of a number, as we talked just due to the policy changes. And in our guide, we basically assume with what was enacted, it will be similar to what we just did in quarter 3. So our guide for the fourth quarter is sort of assumes that same impact that we had in quarter 3.
Speaker Change: Um, you know, and as we've talked about, just overall pricing without search charges because they are, the tariffs are charges, you know, as we've talked to historically the bigger driver of where pricing goes from here will be material costs.
Speaker Change: Um, you know, we're continuing to watch that closely. I think you're going to continue to see areas where we have that, you know, we'll be positive in price, um, in our industrial segments. And you know, that's just something we're going to keep in front of us because obviously, some things are jumping around right now, but we feel how we're managing it and continuing to pull the levers, we can pull to minimize the impact on earnings feel the teams are doing a good job.
Joe Gadano: All right. Thank you, Joe. We have the next question, please.
Speaker Change: Hey wsy. All right. Hey turns. Uh you're going to be exiting this fiscal year with very strong momentum. Uh any thoughts on early percentage on on fiscal 26 and just sort of this momentum of High Teens EPS growth is that
Speaker Change: something that we should be underwriting and and I know you just noted the impact of rising um let's say copper rising at least and so if you could if you could sort of frame that in that in that thought, process around 26, that that'd be great.
Speaker Change: We talked about and let's face it.
Speaker Change: Suj will talk about an investor day in November Ramsey. So you're, you know, we have to make you come to that. So I think, what you see is the growth your momentum we have I I think is clear and certainly, we'll keep in front of those and I do think it comes through the fall through, on the volume from here. Um, you know, we've done a lot of structural work. You've seen the benefits of it, certainly with what we put up here, but I think it's going to be the fall through on the growth that I think we have proven the operations of te and you see it in in many of the businesses and markets that we're in, which does create strong levers for, you know, fall through that, that gets to double digit earnings.
Speaker Change: And the other thing is, while that's a p&l view.
I don't want to lose sight of what we've done on the cash side. You know, cash conversion this year will be over 100% again and that provides the optionality that he talked about. Whether it is deployed to owners or as we did with a couple Acquisitions this year to strengthen, some of those secular trends that were around. So I do think the levers are there to continue this um, you know, certainly we need to continue to execute but I also think like I said, in the pre comments, the Investments we made at how we got deeper into some Trends, you know, just broadened out some of the growth factors that we had versus historical.
All right, thank you, wsy. Can we have the next question, please?
Speaker Change: The merchant.
Speaker Change: You know, just some early thoughts. If you met on the passage of this 1, big beautiful Bill and perhaps you know, offsetting some macro pressure that may be a function of tariff like any early thoughts on that and 1. If I met again on the cash flow, I mean you guys have talked about, um, you know, optionality here with strong free cash flow generation, just some thoughts on you know, where you would like to use that. Optionality as it relates to the acquisition front. Um, and where do you and how's the pipeline looking for those Acquisitions? Thank you.
Speaker Change: Yeah, let me let me talk about the first 1. Um, and then I'll let he talked about the pipeline there. You know, first of all, being, you know, we're a global company. You know, we play all around the world and like we sort of said, some of the things where we've invested to make sure we strengthen ourselves from a localization or things that, you know, I think are evident in our results and you know, there are some areas like when you think about energy that will certainly help us and continue to help us. But, you know, we're going to be focused more on our customers to really make sure how do we bring the Innovation to them around the world where we can play and do we have the supply chain to capitalize it to make sure we can win our fair share and then gain share.
Speaker Change: So, you know, the bill itself touches a lot of things, but let's also realize, T is a global company, um, and how we deploy our Innovation and our manufacturing is all over the world. So you know, there'll be some things that I think we position ourselves. Well for that's in the bill.
Speaker Change: But net, net. We also have to realize the trends we have are Global and you know, that's just sort of a factor of electronics and he's why don't you talk about the capital side of things? Sure. You know, we, we have been obviously more active this year with a couple of deals particularly in the energy Space, 1, a sizable deal with Richards, um, you know, as we look forward not just for the remainder of our fiscal year the next couple of months, but certainly into into FY, 26.
Speaker Change: Um, the pipeline that does look good now, you know, it's it's uh bolt-on in nature. So the types of things that that doesn't mean they're small. Just like the Richards was a sizable. Uh, check we wrote but uh, was a bolt-on for our energy business. And so we see things coming kind of in all shapes and sizes that are out there. Some are more interesting than others. Um, but the, you know, the the beauty in particularly of of our industrial businesses is that it's a fairly fragmented, uh, landscape of of things out there where they're in. Some cases has not been a ton of consolidation and those opportunities where it makes sense. We think we're in a good position to deploy Capital to do that. Um, so,
Speaker Change: You know, we're pleased with what we've done to date, or, or always work in the pipeline and the cultivation efforts, um, it's nice to have the strength of the balance sheet behind us and the, the cash flow that we generate, um, to be able to look at things of, of all different sizes and and, and, uh, be able to make multiple bets and that was just should be what you'll continue to see us do as we move through the near and medium-term Future.
Speaker Change: Okay, thank you, Asia. Can we have the next question, please?
Speaker Change: Your next question.
Speaker Change: Morning. Um, I was just wondering on the um, AI growth that you talked about the 80% growth, how how successful you feel you are and just keeping up with demand and what kind of Investments do you see yourselves making into next year whether its capacity or maybe you're being pushed to expand your product set with the customers? Thanks. So so first off, you know, we have been investing ahead and even if you look this year Steve and, you know, he can probably add more color. Our Capital issue is uh, um, almost 30% capex spending 30% and the vast majority of that has gone into AI so we have been investing ahead. Um, and that's something, you know, it goes back to the first question of how you making sure you have the capacity in place that can absorb the volume, what our customers, you know, are expecting as we get the program went. So I feel we we have been investing. I feel we're continuing to look at. How do we expand?
Speaker Change: For more even more Flex capacity to make sure we're well positioned to continue to drive the growth. But I I feel it's real time investment that's going there and you see it in the numbers, you know, to scale from 300 million to 800 million.
That's massive. And these are products that are new to World type products. These are not just making things that we've made for 40 years. This is Cutting Edge technology on the high speed and it's a real Testament to what our ddn team's been ramping. And in some ways, you know what we did and learned back when you had the cloud. Boom, about 4 years ago. Uh, we did it then and we've just continued to expand to make sure these type of opportunities around high speed. We can capitalize on it.
Right, thank you Steve. Can we have the next question, please?
Speaker Change: Our final question, question comes from shera's.
Shera's: Hey, thanks a lot for for taking my question. So as we look at the company today, you're delivering 20% ebit. Margins in both segments, I believe you have additional restructuring savings coming through in 2026 based on prior actions and some of the higher margin segments appear to be turning a corner. So should we how should we think about the trajectory of margins from here? Are their strategic Investments? You think the organization needs to make? That may offset the incremental margins. You're getting from just the strong Topline growth.
Shera's: Uh, sure. All right, you listen. Um, we've been making Investments, so when you think about the Run rate of our existing
Profile. Uh, whether that's on, um, operating expense Investments, which are primarily around engineering or the capital, uh, Investments, That Terrence just referenced, that help us build out the manufacturing capacity in different parts of the world.
Largely, those are embedded in our run rate. So there, there will be things that we will have trade-offs on. We met, you know, invest certainly in in some of these areas like, around AI that have shorter cycle times, that need quicker, ramps, and trade those off with other areas. But that's what we do every day. Um, in terms of managing to that at times, we take the total number of or the total, you know, the total expense up and other times, we absorb it within there, but I don't think you're going to hear us come out and say well our Merchants would have been this if we didn't do this. That's that's not what. We're that's not what we're all about. I do think as you go into next year balancing. All of this though, um with the growth opportunities that are in front of us, which are very broad-based,
Shera's: You know, you know, I mentioned earlier probably a 30% flow incremental flow through and I think that's probably from modeling purposes is a fair way and listen, when you start getting volumes higher you can see that that tick up and when you start to see volumes you know and and low mid single digits that gets pressured a little bit but an aggregate relative to our business model. That's kind of how we how we think about it.
Shera's: Okay, thank you shares. Um, we want to thank everybody for joining us this morning, and if you have further questions, please contact. Investor relations at T. Thank you and have a nice day.
Shera's: Today's call.
Getting at 11:30 a.m. eastern time today, July 23rd on the investor relations portion of TE Connectivity website, that will conclude the conference for today. Thank you for participating. You may now disconnect